Analysis & Opinion

BEIJING Feb 25 (Reuters) - Yum Brands Inc said on
Monday it will stop using more than 1,000 slaughterhouses in
China as it moves to tighten food safety and reverse a sharp
drop in business at KFC restaurants in its top market after a
scare over contaminated chicken.

Diners began avoiding Kentucky-based Yum's nearly 5,300,
mostly KFC, restaurants in China in December after news reports
and government investigations in the Asian country focused on
chemical residue found in a small portion of its chicken supply.

Yum was not fined by Chinese food safety authorities, but
its restaurant sales in the country dropped and have yet to
recover. As a result, Yum warned this month that it expected
2013 earnings per share to contract, rather than grow.

Yum said it would end ties with smaller chicken suppliers
that have not modernized their operations.

"This is a public problem. Even though China has rules on
use of additive products, we very much regret that some people
still operated while breaking those rules," Yum China Chairman
and Chief Executive Sam Su told a news conference in Beijing.

Su declined to give specifics on other efforts to shore up
the safety of the company's food supply in China or its plans to
lure diners back.

Yum gets more than half of its overall sales from China, the
world's fastest-growing major economy.

The scandal has been a blow to the company, which has a
reputation for serving safe, high-quality meals in China, where
food contamination is a chronic problem.

"This is going to be quite a management task for (Yum) in
terms of their reputation," said David Mahon, managing director
of Mahon China, an investment management company that advises
multinational companies that operate in the Asian country.

Ultimately, the Chinese government is responsible for
setting and enforcing better food safety standards, he said.

Yum Chief Executive David Novak said early this month that
time, not money, is the cure for the company's China sales drop.

Based on the company's experience with prior sales-damaging
crises related to Severe Acute Respiratory Syndrome (SARS),
avian flu and "Sudan Red" dye, Yum said it does not expect
restaurant sales there to turn higher until the fourth quarter.

Shares in Yum closed down 1.1 percent at $64.73 on the New
York Stock Exchange on Monday.